which entrepreneurs would not produce. The amount of profit required to call forth production will vary with the amount of uncertainty and from this we get the concept of the ‘normal profit’ in each line of production. The normal profit is that profit which is only just sufficient to maintain production at its existing level in that industry. Normal profits are therefore a cost of production. This may seem to be at variance with our earlier statement that profits are a residue left after meeting costs. If they are residue left after the productive activity is over, clearly they cannot be a cost which must be met in order to induce production.
We now have to distinguish between those profits which producers expect to make and those which they actually do make; expected profit is undoubtedly a cost of production. Events may not however come up to expectation and realised profits may be lower than expected profits; they may even be negative. It is realised profits which are a residue over cost. In the long run, of course, realised profits affect expectations and the two come together; they will also be closer together for able entrepreneurs than for less able. Nevertheless in the short run the distinction is important; in safe and well-tired lines of production where there is little uncertainty profits will be low but fairly certain. Few firms will make losses and few will make very high profits. There will be a fairly close correspondence between expected and realised profits. In lines where there is considerable uncertainty there is likely to be a much greater disparity between the two and there will also be a very great divergence among the profits made by different firms. Some will make very high profits and some less, but the average profit is likely to be high.
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